Issue 1124 December 9, 2011
BAILOUT OR BUST IN EUROPE
Western Europe's leaders meet this weekend for the
twenty-first summit meeting devoted to the financial crisis
of the Eurozone. Think of it as "Summit 21," which sounds
like a high-end dance club. It's more of a song-and-dance
club.
The central figures of the summit are Sarkozy, Draghi,
and Merkel, which sounds like a struggling law firm. In a
sense, they are.
To understand what is happening this weekend, it helps
if you understand what happened three years ago in the
United States under similar circumstances. At that time, an
ex-Goldman Sachs CEO and a former college professor met
with a group of multimillionaire leaders of Congress. Their
joint official task: to prevent a financial meltdown. How?
By nationalizing the mortgage market and then by borrowing
$787 billion from big banks and the Federal Reserve in
order to lend to other banks and also to debtor firms that
owed big banks. Then the Congressmen leaned on Congress to
accept the offer.
http://bit.ly/BailoutBlitz
Their unofficial task was to preserve the income
streams of those large banks that the ex-CEO thought were
worth saving.
Note: whenever you read about a meeting of senior
politicians to discuss anything to do with money
or the economy, check their net worth:
http://www.celebritynetworth.com
The outcome of those high-level meetings in 2008 is
best understood in terms of a recent song. It is not a
great song. It is not a hit song. But it gets to the point:
"No Bankers Left Behind."
http://bit.ly/NoBankerLeftBehind
ENDGAME OR NOT?
For the past two weeks, the financial press in Europe
and the United States has been filled with stories about
this meeting being the last chance to save the euro, the
Eurozone, and maybe even the European Union. Promises,
promises!
At the same time, European stock markets have rallied.
But several European bond markets have taken serious hits:
Greece, Italy, and Spain are the most notable. The bond
holders are not optimistic. Rising interest rates on
government bonds reflect this. Investors will not buy PIIGS
bonds that do not offer high interest rates.
There are five major issues facing the Eurozone, and
so far none of them has been addressed officially.
1. How to finance the busted PIIGS
2. How to save the banks that lent to the PIIGS
3. How to achieve fiscal unity in the Eurozone
4. How to reduce the government debt/GDP ratio
5. How to get the economy growing above 3%
If #5 is not solved, then 1-4 are irrelevant in the
long run, meaning the next four or five years. Without
economic growth in excess of 3% per annum, there will be
defaults, nation by nation, beginning no later than 2016.
Greece will default sooner, then Italy, then Spain
(probably).
Because all of the large nations in the Eurozone are
still suffering from deficits above the supposedly required
debt-to-GDP limit of 3%, none of them is in a position to
bail out the PIIGS without borrowing even more. The PIIGS'
solution -- which is nothing but a stopgap measure -- is
for the semi-profligate governments in the North to co-sign
on the bank's loans for the totally profligate PIIGS. The
banks will lend to the North, and the North will then buy
Eurobonds, which do not yet exist and are unconstitutional.
The semi-solvent North can delay immediate default by PIIGS
by lending them money to pay the banks interest on their
existing debt. No one will pay down principal. Every nation
will steadily borrow more. This is Ponzi-scheme finance,
and everyone knows it.
The debate is over which profligate nation's signature
on the debt will persuade lenders to buy the new debt at
low interest rates. The lenders know that these loans will
not be repaid. All investors in sovereign debt, from the
Great Depression until today, have assumed this. Liquidity
is provided by other buyers. If anyone wants to sell his
bonds, there supposedly will be buyers. The sellers assume
that they will be able pass on the Old Maid: the IOU-fiat-
money certificates issued by fiscally profligate, deficit-
running governments.
GERMANY SAYS "NEIN!"
For months, Merkel has been the mouthpiece for
politically correct German politicians. She has said that
the European Central Bank is not allowed to buy Eurobonds,
assuming that such bonds will ever be issued by the
European Union, which remains problematical. She says that
such bonds may not legally be issued. She also says that
the ECB must not inflate too much -- certainly not enough
to buy Italy's bonds.
The EU treaty allows the central bank to buy national
bonds, once those bonds have been bought by anyone in the
private sector. The ECB has been doing this for months. It
buys in the secondary market, what we can call the "used
bonds" market. Merkel's stated requirements are without
effect unless she backs them up. With what? This: Germany's
departure from the Eurozone. It can pull out of the euro.
Who could stop this? With which negative sanctions?
Merkel has not closed the door to ECB intervention to
save busted commercial banks. This is the crucial fact of
the Eurozone crisis. There is nothing in the treaties which
created the European Union that prohibits this. There is
nothing in the central bank's bylaws to prohibit this. No
one wants to address this fact directly. It says: "big bank
bailout." It says: "No banker left behind."
I think there will be bailouts eventually. These
bailouts will save the big banks of Europe. Whenever they
are threatened by insolvency, the ECB will intervene to
make euros available to them. The Federal Reserve System
and five other large-nation central banks said on November
30 that they will provide their currencies, in case there
is a run out of the euro.
THE ECB SAYS AS LITTLE AS POSSIBLE
The threat to the system relates to politics. The ECB
so far has refused to say whether it will bail out
governments directly. It can do so indirectly by purchasing
their bonds from other owners in the secondary market. This
would keep down interest rates for a time, but it would
increase monetary inflation. That eventually would raise
long-term bond rates: an added inflation premium for the
loan, something mandated by lenders.
On Thursday, December 8, Mario Draghi, an ex-Goldman
Sachs official and the newly installed head of the ECB,
announced plainly that the ECB will use its power to create
euros out of nothing in order to finance the banks.
In its continued efforts to support the liquidity
situation of euro area banks, and following the
coordinated central bank action on 30 November
2011 to provide liquidity to the global financial
system, the Governing Council today also decided
to adopt further non-standard measures. These
measures should ensure enhanced access of the
banking sector to liquidity and facilitate the
functioning of the euro area money market. They
are expected to support the provision of credit
to households and non-financial corporations.
In addition to lowering the inter-bank borrowing rate
by 25 basis points to 1%, which had been widely expected,
the ECB will soon lower the reserve ratio requirement of
banks. This frees up the banks to lend.
Third, to reduce the reserve ratio, which is
currently 2%, to 1%. This will free up collateral
and support money market activity. As a
consequence of the full allotment policy applied
in the ECB's main refinancing operations and the
way banks are using this option, the system of
reserve requirements is not needed to the same
extent as under normal circumstances to steer
money market conditions. This measure will take
effect as of the maintenance period starting on
18 January 2012.
At the end of his speech, he finally addressed the
central issue, the issue which has called forth summit 21.
He made no promises. He pushed the participants to move
toward fiscal union. This has been the goal of the European
branch of New World Order for 60 years: unification.
Turning to fiscal policies, all euro area
governments urgently need to do their utmost to
support fiscal sustainability in the euro area as
a whole. A new fiscal compact, comprising a
fundamental restatement of the fiscal rules
together with the fiscal commitments that euro
area governments have made, is the most important
precondition for restoring the normal functioning
of financial markets. Policy-makers need to
correct excessive deficits and move to balanced
budgets in the coming years by specifying and
implementing the necessary adjustment measures.
This will support public confidence in the
soundness of policy actions and thus strengthen
overall economic sentiment.
http://bit.ly/ECBactions
This left unsaid the fate of the Greek government and
the Italian government. The newly appointed -- not elected
-- heads of state in both of these nations are hoping for
an official press release by the attendees on Sunday. The press
release must promise some sort of unconstitutional
re-structuring of Europe, which will in turn be baptized by
ECB purchases of Eurobonds. Problem: Merkel adamantly
opposes Eurobonds.
Mario Monti, the Italian Prime Minister, was an
advisor to Goldman Sachs. (http://bit.ly/MontiGoldman)
Lucas Papademos, the new Premier of Greece, is a well-
screened central banker. He was senior economist at the
Federal Reserve Bank of Boston in 1980. Then he was
appointed Governor of the Bank of Greece from 1994 to 2002
and Vice President of the European Central Bank from 2002
to 2010. These men know only one solution: more government
debt and more central bank inflation.
MERKEL AND SARKOZY
Sarkozy is running for re-election. His great fear is
a banking crisis. French banks are major creditors to
Italy's government. If any big French banks go down, France
will see its credit rating reduced. That could be politically
disastrous for him.
To survive politically, Merkel must demand fiscal
union as the quid pro quo for any change in the ECB's rules
against its direct purchase of national bonds. But this is
fig-leaf politics: the bank can legally buy bonds in the
"used bonds" market, and has. Merkel is opposed to
Eurobonds, i.e., co-signed notes.
By calling for fiscal union, she is ready to sell out
Germany to the Eurocrats. She may be able to buy some
wiggle room for ECB intervention this way, but it is not
clear that the ECB will follow this path anyway.
Germany can also walk away. It is in a strong economic
position. It is economically the strongest nation in the
European Union. It does not have to conform to what the
French want, let alone what Italian politicians wants. But
the push is toward national unification inside the European
elite. It always has been. Margaret Thatcher was a rarity:
a rhetorical nationalist in the highest political office.
THE EUROPEAN UNION DRIFTS
There is no permanent solution, other than default.
The PIIGS cannot produce enough wealth to grow their way
out of their debts. They will soon be overwhelmed by their
rising domestic debts, public and private. They will borrow
all they can, but they are piling debt upon debt. Their
Ponzi schemes cannot last for another half decade. The
schemes may not last another six weeks.
Yet no one in high office seems to care. The European
Union's operations bump along. It's business as usual.
British columnist Andrew Gillggan describes the contrast
between apocalyptic rhetoric and EU operations. First, the
rhetoric of fear:
The chief executives of Shell, Unilever and
Phillips called it "one minute to midnight." Even
the EU's own financial affairs commissioner, Olli
Rehn, says Europe only has ten days to stop the
euro falling apart.
By this coming Friday, the ninth of those ten
days, the continent's leaders are supposed to
have agreed a plan that satisfies the markets and
gives their tottering currency a future. They
have tried, and failed, three times this year
already. A fourth failure would probably be the
end. But in the Brussels corridors, with the
sands fast running out, you really wouldn't know
that these are perhaps the most dangerous times
in Europe since the Second World War.
This is ignored in Brussels. The bureaucracy moves
forward at a snail's steady pace. It pays no attention to
the current crisis.
At the Berlaymont, the Commission HQ, on
Thursday, they were proudly launching their
"better airports package." "There is no
Commission proposal for the auctioning of new
airport capacity," explained an official. "The
decision was to go ahead with liberalising the
secondary trading of existing slots." Across the
road the European Council, the ministerial
decision making body, was busy on a resolution
deciding that member states must "combat negative
stereotypes regarding older persons" and
demanding that "optimism has to prevail in the
EU." The week before, the Commission announced a
new drive to "protect our sharks," proclaiming it
a "very good day, not just for European sharks,
but for sharks worldwide." The sharks in question
were the finned, not the financial, variety.
The European Parliament was doing a little
better. Mario Draghi, the new head of the
European Central Bank, addressed MEPs on ways out
of the crisis. His speech was easily the most
important thing said in this particular building
for years. Amazingly, however, he made it to an
almost empty chamber. Of the 736 MEPs, about 700
- or 95 per cent - were elsewhere. Still, never
mind. They had a key meeting later on the subject
of "online gambling at a policy crossroads:
towards an EU regulatory approach or increased
member states' co-operation?"
The European Union could break apart, he thinks. He is
not alone. This would be the great reversal of 60 years of
planning.
It is because the EU, at all levels, has
consistently failed to rise to the occasion that
it now finds itself in a position where it might
never pass another "better airports package" or
online gambling policy crossroad; where its
currency, the euro, might not reach adolescence,
let alone old age; where merely declaring your
support for something -- optimism, say, or
economic and monetary union -- is no longer
enough to make it succeed.
"I don't know whether we will have an EU in six
months' time," says Sharon Bowles, the British
Lib Dem MEP who chairs the parliament's economic
and monetary affairs committee. Asked whether she
meant the EU or the euro, she said: "I don't
think we'll have either; it's game over."
Could it really be this bad for the EU? Are their
plans about to go down the proverbial drain? Some of them
think so.
Along the EU's 24 miles of neutrally-carpeted
corridors, in all its airport-style bars with
their little high tables and chairs, there is a
feeling of powerlessness and denial. Asked to
sketch out what would happen if the euro went
down, one top official said: "I am trying not to
think about it."
http://bit.ly/FiddlingEurocrats
This is good news for us non-globalists, who regard
the surrender of national sovereignty as a mistake.
CONCLUSION
The free market is imposing votes of no confidence on
the governments of Europe. If they are not bailed out by
the ECB, which alone has the funds -- counterfeited -- to
do this, there will be great agony in the West's stock
markets. But if the politicians again kick the can by not
dealing with the fiscal unification issue, then the markets
-- stock and bond -- will impose negative sanctions.
Investors want fast and big ECB action -- the bazooka, as
Hank Paulson called it in July 2008. Voters do not want
austerity: government spending cuts. The ECB faces an
endless series of national bailouts.
I think this is why the ECB has not said what it plans
to do. We know what every central bank always plans to do:
save the largest commercial banks.
The weekend may bring a rosy announcement from the
politicians. Then Draghi may make an announcement promising
to support the debt of the new regime, assuming that the
parliaments actually create it. The voters surely won't,
but they will not be consulted.
This will all take time -- months. But the euro may
not have months. Italy needs money, fast.
Europe is at a fork in the road. As Yogi Berra said,
"when you're at a fork in the road, take it." I do not
think the people in charge know which path to take. The
only future that lies ahead is painful: a breakup of the EU
and the Eurozone, or else a new era of inflation.
Politicians prefer inflation. They are likely to get it. We
just don't know how soon.
BAILOUT OR BUST IN EUROPE
Western Europe's leaders meet this weekend for the
twenty-first summit meeting devoted to the financial crisis
of the Eurozone. Think of it as "Summit 21," which sounds
like a high-end dance club. It's more of a song-and-dance
club.
The central figures of the summit are Sarkozy, Draghi,
and Merkel, which sounds like a struggling law firm. In a
sense, they are.
To understand what is happening this weekend, it helps
if you understand what happened three years ago in the
United States under similar circumstances. At that time, an
ex-Goldman Sachs CEO and a former college professor met
with a group of multimillionaire leaders of Congress. Their
joint official task: to prevent a financial meltdown. How?
By nationalizing the mortgage market and then by borrowing
$787 billion from big banks and the Federal Reserve in
order to lend to other banks and also to debtor firms that
owed big banks. Then the Congressmen leaned on Congress to
accept the offer.
http://bit.ly/BailoutBlitz
Their unofficial task was to preserve the income
streams of those large banks that the ex-CEO thought were
worth saving.
Note: whenever you read about a meeting of senior
politicians to discuss anything to do with money
or the economy, check their net worth:
http://www.celebritynetworth.com
The outcome of those high-level meetings in 2008 is
best understood in terms of a recent song. It is not a
great song. It is not a hit song. But it gets to the point:
"No Bankers Left Behind."
http://bit.ly/NoBankerLeftBehind
ENDGAME OR NOT?
For the past two weeks, the financial press in Europe
and the United States has been filled with stories about
this meeting being the last chance to save the euro, the
Eurozone, and maybe even the European Union. Promises,
promises!
At the same time, European stock markets have rallied.
But several European bond markets have taken serious hits:
Greece, Italy, and Spain are the most notable. The bond
holders are not optimistic. Rising interest rates on
government bonds reflect this. Investors will not buy PIIGS
bonds that do not offer high interest rates.
There are five major issues facing the Eurozone, and
so far none of them has been addressed officially.
1. How to finance the busted PIIGS
2. How to save the banks that lent to the PIIGS
3. How to achieve fiscal unity in the Eurozone
4. How to reduce the government debt/GDP ratio
5. How to get the economy growing above 3%
If #5 is not solved, then 1-4 are irrelevant in the
long run, meaning the next four or five years. Without
economic growth in excess of 3% per annum, there will be
defaults, nation by nation, beginning no later than 2016.
Greece will default sooner, then Italy, then Spain
(probably).
Because all of the large nations in the Eurozone are
still suffering from deficits above the supposedly required
debt-to-GDP limit of 3%, none of them is in a position to
bail out the PIIGS without borrowing even more. The PIIGS'
solution -- which is nothing but a stopgap measure -- is
for the semi-profligate governments in the North to co-sign
on the bank's loans for the totally profligate PIIGS. The
banks will lend to the North, and the North will then buy
Eurobonds, which do not yet exist and are unconstitutional.
The semi-solvent North can delay immediate default by PIIGS
by lending them money to pay the banks interest on their
existing debt. No one will pay down principal. Every nation
will steadily borrow more. This is Ponzi-scheme finance,
and everyone knows it.
The debate is over which profligate nation's signature
on the debt will persuade lenders to buy the new debt at
low interest rates. The lenders know that these loans will
not be repaid. All investors in sovereign debt, from the
Great Depression until today, have assumed this. Liquidity
is provided by other buyers. If anyone wants to sell his
bonds, there supposedly will be buyers. The sellers assume
that they will be able pass on the Old Maid: the IOU-fiat-
money certificates issued by fiscally profligate, deficit-
running governments.
GERMANY SAYS "NEIN!"
For months, Merkel has been the mouthpiece for
politically correct German politicians. She has said that
the European Central Bank is not allowed to buy Eurobonds,
assuming that such bonds will ever be issued by the
European Union, which remains problematical. She says that
such bonds may not legally be issued. She also says that
the ECB must not inflate too much -- certainly not enough
to buy Italy's bonds.
The EU treaty allows the central bank to buy national
bonds, once those bonds have been bought by anyone in the
private sector. The ECB has been doing this for months. It
buys in the secondary market, what we can call the "used
bonds" market. Merkel's stated requirements are without
effect unless she backs them up. With what? This: Germany's
departure from the Eurozone. It can pull out of the euro.
Who could stop this? With which negative sanctions?
Merkel has not closed the door to ECB intervention to
save busted commercial banks. This is the crucial fact of
the Eurozone crisis. There is nothing in the treaties which
created the European Union that prohibits this. There is
nothing in the central bank's bylaws to prohibit this. No
one wants to address this fact directly. It says: "big bank
bailout." It says: "No banker left behind."
I think there will be bailouts eventually. These
bailouts will save the big banks of Europe. Whenever they
are threatened by insolvency, the ECB will intervene to
make euros available to them. The Federal Reserve System
and five other large-nation central banks said on November
30 that they will provide their currencies, in case there
is a run out of the euro.
THE ECB SAYS AS LITTLE AS POSSIBLE
The threat to the system relates to politics. The ECB
so far has refused to say whether it will bail out
governments directly. It can do so indirectly by purchasing
their bonds from other owners in the secondary market. This
would keep down interest rates for a time, but it would
increase monetary inflation. That eventually would raise
long-term bond rates: an added inflation premium for the
loan, something mandated by lenders.
On Thursday, December 8, Mario Draghi, an ex-Goldman
Sachs official and the newly installed head of the ECB,
announced plainly that the ECB will use its power to create
euros out of nothing in order to finance the banks.
In its continued efforts to support the liquidity
situation of euro area banks, and following the
coordinated central bank action on 30 November
2011 to provide liquidity to the global financial
system, the Governing Council today also decided
to adopt further non-standard measures. These
measures should ensure enhanced access of the
banking sector to liquidity and facilitate the
functioning of the euro area money market. They
are expected to support the provision of credit
to households and non-financial corporations.
In addition to lowering the inter-bank borrowing rate
by 25 basis points to 1%, which had been widely expected,
the ECB will soon lower the reserve ratio requirement of
banks. This frees up the banks to lend.
Third, to reduce the reserve ratio, which is
currently 2%, to 1%. This will free up collateral
and support money market activity. As a
consequence of the full allotment policy applied
in the ECB's main refinancing operations and the
way banks are using this option, the system of
reserve requirements is not needed to the same
extent as under normal circumstances to steer
money market conditions. This measure will take
effect as of the maintenance period starting on
18 January 2012.
At the end of his speech, he finally addressed the
central issue, the issue which has called forth summit 21.
He made no promises. He pushed the participants to move
toward fiscal union. This has been the goal of the European
branch of New World Order for 60 years: unification.
Turning to fiscal policies, all euro area
governments urgently need to do their utmost to
support fiscal sustainability in the euro area as
a whole. A new fiscal compact, comprising a
fundamental restatement of the fiscal rules
together with the fiscal commitments that euro
area governments have made, is the most important
precondition for restoring the normal functioning
of financial markets. Policy-makers need to
correct excessive deficits and move to balanced
budgets in the coming years by specifying and
implementing the necessary adjustment measures.
This will support public confidence in the
soundness of policy actions and thus strengthen
overall economic sentiment.
http://bit.ly/ECBactions
This left unsaid the fate of the Greek government and
the Italian government. The newly appointed -- not elected
-- heads of state in both of these nations are hoping for
an official press release by the attendees on Sunday. The press
release must promise some sort of unconstitutional
re-structuring of Europe, which will in turn be baptized by
ECB purchases of Eurobonds. Problem: Merkel adamantly
opposes Eurobonds.
Mario Monti, the Italian Prime Minister, was an
advisor to Goldman Sachs. (http://bit.ly/MontiGoldman)
Lucas Papademos, the new Premier of Greece, is a well-
screened central banker. He was senior economist at the
Federal Reserve Bank of Boston in 1980. Then he was
appointed Governor of the Bank of Greece from 1994 to 2002
and Vice President of the European Central Bank from 2002
to 2010. These men know only one solution: more government
debt and more central bank inflation.
MERKEL AND SARKOZY
Sarkozy is running for re-election. His great fear is
a banking crisis. French banks are major creditors to
Italy's government. If any big French banks go down, France
will see its credit rating reduced. That could be politically
disastrous for him.
To survive politically, Merkel must demand fiscal
union as the quid pro quo for any change in the ECB's rules
against its direct purchase of national bonds. But this is
fig-leaf politics: the bank can legally buy bonds in the
"used bonds" market, and has. Merkel is opposed to
Eurobonds, i.e., co-signed notes.
By calling for fiscal union, she is ready to sell out
Germany to the Eurocrats. She may be able to buy some
wiggle room for ECB intervention this way, but it is not
clear that the ECB will follow this path anyway.
Germany can also walk away. It is in a strong economic
position. It is economically the strongest nation in the
European Union. It does not have to conform to what the
French want, let alone what Italian politicians wants. But
the push is toward national unification inside the European
elite. It always has been. Margaret Thatcher was a rarity:
a rhetorical nationalist in the highest political office.
THE EUROPEAN UNION DRIFTS
There is no permanent solution, other than default.
The PIIGS cannot produce enough wealth to grow their way
out of their debts. They will soon be overwhelmed by their
rising domestic debts, public and private. They will borrow
all they can, but they are piling debt upon debt. Their
Ponzi schemes cannot last for another half decade. The
schemes may not last another six weeks.
Yet no one in high office seems to care. The European
Union's operations bump along. It's business as usual.
British columnist Andrew Gillggan describes the contrast
between apocalyptic rhetoric and EU operations. First, the
rhetoric of fear:
The chief executives of Shell, Unilever and
Phillips called it "one minute to midnight." Even
the EU's own financial affairs commissioner, Olli
Rehn, says Europe only has ten days to stop the
euro falling apart.
By this coming Friday, the ninth of those ten
days, the continent's leaders are supposed to
have agreed a plan that satisfies the markets and
gives their tottering currency a future. They
have tried, and failed, three times this year
already. A fourth failure would probably be the
end. But in the Brussels corridors, with the
sands fast running out, you really wouldn't know
that these are perhaps the most dangerous times
in Europe since the Second World War.
This is ignored in Brussels. The bureaucracy moves
forward at a snail's steady pace. It pays no attention to
the current crisis.
At the Berlaymont, the Commission HQ, on
Thursday, they were proudly launching their
"better airports package." "There is no
Commission proposal for the auctioning of new
airport capacity," explained an official. "The
decision was to go ahead with liberalising the
secondary trading of existing slots." Across the
road the European Council, the ministerial
decision making body, was busy on a resolution
deciding that member states must "combat negative
stereotypes regarding older persons" and
demanding that "optimism has to prevail in the
EU." The week before, the Commission announced a
new drive to "protect our sharks," proclaiming it
a "very good day, not just for European sharks,
but for sharks worldwide." The sharks in question
were the finned, not the financial, variety.
The European Parliament was doing a little
better. Mario Draghi, the new head of the
European Central Bank, addressed MEPs on ways out
of the crisis. His speech was easily the most
important thing said in this particular building
for years. Amazingly, however, he made it to an
almost empty chamber. Of the 736 MEPs, about 700
- or 95 per cent - were elsewhere. Still, never
mind. They had a key meeting later on the subject
of "online gambling at a policy crossroads:
towards an EU regulatory approach or increased
member states' co-operation?"
The European Union could break apart, he thinks. He is
not alone. This would be the great reversal of 60 years of
planning.
It is because the EU, at all levels, has
consistently failed to rise to the occasion that
it now finds itself in a position where it might
never pass another "better airports package" or
online gambling policy crossroad; where its
currency, the euro, might not reach adolescence,
let alone old age; where merely declaring your
support for something -- optimism, say, or
economic and monetary union -- is no longer
enough to make it succeed.
"I don't know whether we will have an EU in six
months' time," says Sharon Bowles, the British
Lib Dem MEP who chairs the parliament's economic
and monetary affairs committee. Asked whether she
meant the EU or the euro, she said: "I don't
think we'll have either; it's game over."
Could it really be this bad for the EU? Are their
plans about to go down the proverbial drain? Some of them
think so.
Along the EU's 24 miles of neutrally-carpeted
corridors, in all its airport-style bars with
their little high tables and chairs, there is a
feeling of powerlessness and denial. Asked to
sketch out what would happen if the euro went
down, one top official said: "I am trying not to
think about it."
http://bit.ly/FiddlingEurocrats
This is good news for us non-globalists, who regard
the surrender of national sovereignty as a mistake.
CONCLUSION
The free market is imposing votes of no confidence on
the governments of Europe. If they are not bailed out by
the ECB, which alone has the funds -- counterfeited -- to
do this, there will be great agony in the West's stock
markets. But if the politicians again kick the can by not
dealing with the fiscal unification issue, then the markets
-- stock and bond -- will impose negative sanctions.
Investors want fast and big ECB action -- the bazooka, as
Hank Paulson called it in July 2008. Voters do not want
austerity: government spending cuts. The ECB faces an
endless series of national bailouts.
I think this is why the ECB has not said what it plans
to do. We know what every central bank always plans to do:
save the largest commercial banks.
The weekend may bring a rosy announcement from the
politicians. Then Draghi may make an announcement promising
to support the debt of the new regime, assuming that the
parliaments actually create it. The voters surely won't,
but they will not be consulted.
This will all take time -- months. But the euro may
not have months. Italy needs money, fast.
Europe is at a fork in the road. As Yogi Berra said,
"when you're at a fork in the road, take it." I do not
think the people in charge know which path to take. The
only future that lies ahead is painful: a breakup of the EU
and the Eurozone, or else a new era of inflation.
Politicians prefer inflation. They are likely to get it. We
just don't know how soon.
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